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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 ________________________________________
FORM 10-Q
________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020              or             
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to_________             
Commission file number 1-35701
Era Group Inc.
(Exact Name of Registrant as Specified in Its Charter)
________________________________________ 
Delaware
 
72-1455213
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
 
945 Bunker Hill Rd., Suite 650
 
 
Houston,
Texas
 
77024
(Address of Principal Executive Offices)
 
(Zip Code)
713-369-4700
(Registrant’s Telephone Number, Including Area Code)
________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
ERA
NYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
¨
 
ý
 
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
The total number of shares of common stock, par value $0.01 per share, outstanding as of May 1, 2020 was 21,525,383. The Registrant has no other class of common stock outstanding.



ERA GROUP INC.
Table of Contents
 
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.


1


PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
ERA GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
March 31,
2020
 
December 31,
2019
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
113,518

 
$
117,366

Receivables:
 
 
 
Trade, operating, net of allowance for doubtful accounts
34,102

 
32,730

Trade, dry-leasing
5,754

 
5,234

Tax receivables
2,159

 
2,860

Other
15,006

 
15,421

Inventories, net
19,941

 
20,066

Prepaid expenses
3,412

 
2,184

Total current assets
193,892

 
195,861

Property and equipment
893,585

 
895,063

Accumulated depreciation
(345,457
)
 
(338,164
)
Property and equipment, net
548,128

 
556,899

Operating lease right-of-use
8,672

 
9,468

Intangible assets
92

 
96

Other assets
1,726

 
2,191

Total assets
$
752,510

 
$
764,515

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST
 AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
12,475

 
$
12,923

Accrued wages and benefits
6,565

 
10,554

Accrued interest
3,309

 
520

Accrued income taxes
2,297

 
3,612

Accrued other taxes
1,539

 
937

Accrued contingencies
701

 
598

Current portion of long-term debt
17,901

 
18,317

Other current liabilities
3,310

 
3,315

Total current liabilities
48,097

 
50,776

Long-term debt
142,004

 
141,832

Deferred income taxes
101,984

 
103,793

Operating lease liabilities
7,103

 
7,815

Deferred gains and other liabilities
920

 
745

Total liabilities
300,108

 
304,961

Commitments and contingencies (see Note 7)

 

Redeemable noncontrolling interest
2,752

 
2,812

Equity:
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,756,272 and 21,285,613 outstanding in 2020 and 2019, respectively, exclusive of treasury shares
230

 
224

Additional paid-in capital
452,701

 
452,009

Retained earnings
7,463

 
14,692

Treasury shares, at cost; 1,236,282 and 1,152,826 shares in 2020 and 2019, respectively
(10,744
)
 
(10,183
)
Total equity
449,650

 
456,742

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
752,510

 
$
764,515






The accompanying notes are an integral part of these condensed consolidated financial statements.

2


ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended 
 March 31,
 
2020
 
2019
Revenues:

 
 
 
Operating revenues
$
53,980

 
$
47,830

Dry-leasing revenues
3,076

 
3,463

Total revenues
57,056

 
51,293

Costs and expenses:
 
 
 
Operating
38,506

 
36,696

Administrative and general
12,745

 
8,875

Depreciation and amortization
9,507

 
9,450

Total costs and expenses
60,758

 
55,021

Loss on asset dispositions, net
(34
)
 
(124
)
Operating loss
(3,736
)
 
(3,852
)
Other income (expense):
 
 
 
Interest income
749

 
752

Interest expense
(3,439
)
 
(3,461
)
Foreign currency losses, net
(1,704
)
 
(126
)
Other, net
10

 
(11
)
Total other income (expense)
(4,384
)
 
(2,846
)
Loss before income taxes and equity earnings
(8,120
)
 
(6,698
)
Income tax benefit
(831
)
 
(1,588
)
Loss before equity earnings
(7,289
)
 
(5,110
)
Equity loss, net of tax

 
(975
)
Net loss
(7,289
)
 
(6,085
)
Net loss attributable to noncontrolling interest in subsidiary
60

 
142

Net loss attributable to Era Group Inc.
$
(7,229
)
 
$
(5,943
)
 
 
 
 
Loss per common share, basic and diluted
$
(0.35
)
 
$
(0.28
)
 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
20,702,670

 
21,323,312

Diluted
20,702,670

 
21,323,312

















The accompanying notes are an integral part of these condensed consolidated financial statements.

3


ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
Net loss
 
$
(7,289
)
 
$
(6,085
)
Comprehensive loss
 
(7,289
)
 
(6,085
)
Comprehensive loss attributable to noncontrolling interest in subsidiary
 
60

 
142

Comprehensive loss attributable to Era Group Inc.
 
$
(7,229
)
 
$
(5,943
)







































The accompanying notes are an integral part of these condensed consolidated financial statements.

4


ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
(unaudited, in thousands)

Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Era Group Inc. Stockholders’ Equity
 
 
Redeemable Noncontrolling Interest
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
December 31, 2019
 
$
2,812

 
 
$
224

 
$
452,009

 
$
14,692

 
$
(10,183
)
 
$

 
$
456,742

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock grants
 

 
 
6

 
(6
)
 

 

 

 

Share award amortization
 

 
 

 
698

 

 

 

 
698

Purchase of treasury shares
 

 
 

 

 

 
(561
)
 

 
(561
)
Net loss
 

 
 

 

 
(7,289
)
 

 

 
(7,289
)
Net loss attributable to redeemable noncontrolling interest
 
(60
)
 
 

 

 
60

 

 

 
60

March 31, 2020
 
$
2,752

 
 
$
230

 
$
452,701

 
$
7,463

 
$
(10,744
)
 
$

 
$
449,650




Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Era Group Inc. Stockholders’ Equity
 
 
Redeemable Noncontrolling Interest
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
December 31, 2018
 
$
3,302

 
 
$
219

 
$
447,298

 
$
18,285

 
$
(2,476
)
 
$
110

 
$
463,436

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock grants
 

 
 
4

 
(4
)
 

 

 

 

Employee Stock Purchase Plan
 

 
 
1

 
589

 

 

 

 
590

Share award amortization
 

 
 

 
807

 

 

 

 
807

Purchase of treasury shares
 

 
 

 

 

 
(5
)
 

 
(5
)
Net loss
 

 
 

 

 
(6,085
)
 

 

 
(6,085
)
Net loss attributable to redeemable noncontrolling interest
 
(142
)
 
 

 

 
142

 

 

 
142

March 31, 2019
 
$
3,160

 
 
$
224

 
$
448,690

 
$
12,342

 
$
(2,481
)
 
$
110

 
$
458,885


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 








The accompanying notes are an integral part of these condensed consolidated financial statements.

5


ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Three Months Ended 
 March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(7,289
)
 
$
(6,085
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,507

 
9,450

Share-based compensation
698

 
807

Interest income
(112
)
 
(157
)
Loss on asset dispositions, net
34

 
124

Debt discount amortization
72

 
67

Amortization of deferred financing costs
246

 
239

Foreign currency losses, net
1,648

 
126

Deferred income tax (benefit) expense
(1,809
)
 
(3,533
)
Equity earnings, net of tax

 
975

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in receivables
(1,440
)
 
493

(Increase) decrease in prepaid expenses and other assets
(743
)
 
(452
)
Decrease (increase) in accounts payable, accrued expenses and other liabilities
(2,944
)
 
581

Net cash provided by (used in) operating activities
(2,132
)
 
2,635

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(400
)
 
(1,312
)
Purchase of investments

 
(5,000
)
Principal payments on notes due from equity investees

 
2,334

Principal payments on third party notes receivable
55

 
104

Net cash used in investing activities
(345
)
 
(3,874
)
Cash flows from financing activities:
 
 
 
Payments on long-term debt
(416
)
 
(542
)
Proceeds from share award plans

 
590

Purchase of treasury shares
(561
)
 
(5
)
Net cash provided by (used in) financing activities
(977
)
 
43

Effects of exchange rate changes on cash and cash equivalents
(394
)
 
55

Net decrease in cash, cash equivalents and restricted cash
(3,848
)
 
(1,141
)
Cash, cash equivalents and restricted cash, beginning of period
117,366

 
50,753

Cash, cash equivalents and restricted cash, end of period
$
113,518


$
49,612

Supplemental cash flow information:
 
 
 
Cash paid for interest
$
332

 
$
353

Cash paid for income taxes
$
2,300

 
14





The accompanying notes are an integral part of these condensed consolidated financial statements.

6


ERA GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICY
The condensed consolidated financial statements include the accounts of Era Group Inc. and its consolidated subsidiaries. Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q to the “Company” refers to Era Group Inc. and its consolidated subsidiaries, and any reference to “Era Group” refers to Era Group Inc. without its subsidiaries. The condensed consolidated financial information for the three months ended March 31, 2020 and 2019 has been prepared by the Company and has not been audited by its independent registered public accounting firm. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made to fairly present the Company’s financial position as of March 31, 2020, its results of operations for the three months ended March 31, 2020 and 2019, its comprehensive income for the three months ended March 31, 2020 and 2019, its changes in equity for the three months ended March 31, 2020, and 2019, and its cash flows for the three months ended March 31, 2020 and 2019. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Certain of the Company’s operations are subject to seasonal factors. Operations in the U.S. Gulf of Mexico are often at their highest levels from April to September, as daylight hours increase, and are at their lowest levels from December through February, as daylight hours decrease.
The outbreak of the novel coronavirus (“COVID-19”) caused a significant decrease in oil and natural gas prices resulting from oversupply and demand weakness and also caused significant disruptions and volatility in the global marketplace towards the end the first quarter of 2020.  These conditions continued through April 2020 and are expected to continue for at least the near future.  These conditions were initially exacerbated by decisions by large oil producing countries that have now been altered, but the resolution has not led to a meaningful increase in oil and gas prices.  While the decline in oil and natural gas prices did not have a material impact on the Company’s results of operations or financial condition during the three months ended March 31, 2020, a sustained environment of depressed prices could have a material impact on its business and its liquidity. 
Basis of Consolidation. The consolidated financial statements include the accounts of Era Group Inc., its wholly and majority-owned subsidiaries and entities that meet the criteria of variable interest entities (“VIEs”) of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation.
Revenue Recognition. The Company recognizes revenues for flight services and emergency response services with the passing of each day as the Company has the right to consideration from its customers in an amount that corresponds directly with the value to the Company’s customer of the performance completed to date. Therefore, the Company has elected to exercise the right to invoice practical expedient in its adoption of ASC 606. The right to invoice represents a method for recognizing revenue over time using the output measure of “value to the customer” which is an objective measure of an entity’s performance in a contract. The Company typically invoices its customers on a monthly basis for revenues earned during the prior month with payment terms of 30 days. The Company’s customer arrangements do not contain any significant financing component for its customers.
Current Expected Credit Losses (CECL). Customers are primarily international, independent and major integrated exploration, development and production companies, third party helicopter operators and the U.S. government. The Company designates trade receivables as a single pool of assets based on its short-term nature, similar customer base and risk characteristics. Customers are typically granted credit on a short-term basis, and related credit risks are considered minimal. The Company conducts periodic quantitative and qualitative analysis on historic customer payment trends, customer credit ratings and foreseeable economic conditions. Historically, losses on trade receivables have been immaterial and uncorrelated to each other. Based on these circumstances, the Company decides if additional reserve amounts are needed against the trade receivables asset pool, on a case by case basis. Trade receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted. As of as of March 31, 2020, the Company did not reserve any additional amounts for CECL.
Leases. The Company determines if an arrangement is a lease at inception or during modification or renewal of an existing lease. Operating leases are maintained for a number of fixed assets including land, hangars, buildings, fuel tanks and tower sites. The right-of-use assets associated with these leases are reflected under long-term assets; the current portion of the long-term payables are reflected under other current liabilities; and the payables on lease agreements past one year are recorded as long-term liabilities on the Company’s consolidated balance sheets. For those contracts with terms of twelve months or less, the lease expense

7


is recognized on a straight-line basis over the lease term and recorded in operating expenses on the consolidated statement of operations.  As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used to determine the present value of future payments. Most of the Company’s lease agreements allow the option of renewal or extension, which are considered a part of the lease term. When it is reasonably certain that a lease will be extended, this is incorporated into the calculations.
New Accounting Standards - Adopted. In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASU No. 2016-13), which sets forth the current expected credit loss model, a new forward-looking impairment model for certain financial instruments based on expected losses rather than incurred losses.  The ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption of the standard was permitted.  Entities were required to adopt ASU No. 2016-13 using a modified retrospective approach, subject to certain limited exceptions.  Upon evaluating the impact of this ASU, the Company concluded that no additional reserves were necessary as historical losses were immaterial, and, based on the qualitative and quantitative analysis performed in accordance with ASC 326 requirements, the Company determined there was no reasonable expectation of credit losses associated with the Company’s trade receivables in the foreseeable future. The Company adopted ASU No. 2016-13 effective January 1, 2020, and such adoption did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurements” (ASU No. 2018-13, update to topic ASC-820), providing guidance for the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU No. 2018-13 effective January 1, 2020, and such adoption did not have an impact on its consolidated financial statements.
New Accounting Standards - Not Yet Adopted. In January 2020, the FASB issued ASU No. 2020-01, “Investments-Equity Securities” Topic 321, “Investments-Equity Method and Joint Ventures” Topic 323 and “Derivatives and Hedging” Topic 815 (ASU No. 2020-01) as an update to ASU No. 2016-01 “Financial Instruments-Overall”, further clarifying the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments. This ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. With this update, the FASB aims to clarify that, when determining the accounting for certain forward contracts and purchase options a company should now consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The FASB expects this ASU to reduce diversity in practice and increase comparability of the accounting for these interactions. This ASU is effective for interim and annual periods beginning after December 15, 2020. The Company is evaluating the potential impact of adopting this ASU but does not expect such adoption to have a material impact on its consolidated financial statements.
2.
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
As of March 31, 2020 and December 31, 2019, the Company did not have any assets or liabilities that are measured at fair value on a recurring basis.
The estimated fair values of the Company’s other financial assets and liabilities as of March 31, 2020 and December 31, 2019 were as follows (in thousands): 
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
March 31, 2020
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
159,905

 
$

 
$
155,120

 
$

 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
160,149

 
$

 
$
166,691

 
$


8


The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value. The fair value of the Company’s long-term debt was estimated using discounted cash flow analysis based on estimated current rates for similar types of arrangements. Considerable judgment was required in developing certain of the estimates of fair value, and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Investments. In 2019, the Company purchased $5.0 million of corporate securities and later in 2019, the Company sold these corporate securities for cash proceeds of $4.4 million resulting in a net loss of $0.6 million.
3.
ACQUISITIONS AND DISPOSITIONS
Capital Expenditures. During the three months ended March 31, 2020, capital expenditures were $0.4 million and consisted primarily of helicopter spare parts. During the three months ended March 31, 2020 and 2019, the Company did not capitalize any interest. As of March 31, 2020 and December 31, 2019, construction in progress, which is a component of property and equipment, included capitalized interest of $0.7 million. A summary of changes to the Company’s operating helicopter fleet is as follows:
Equipment Additions - During the three months ended March 31, 2020 and 2019, the Company did not place any helicopters into service. The Company places helicopters in service once completion work has been finalized and the helicopters are ready for use.
Equipment Dispositions - During the three months ended March 31, 2020 and 2019, the Company did not sell or dispose of any material assets. During the three months ended March 31, 2020, the Company parted out one light-twin helicopter, and those parts are now available to repair and maintain other helicopters.
4.
LEASES
The Company leases land, hangars, buildings, fuel tanks and tower sites under operating lease agreements. The Company determines if an arrangement is a lease at inception, and many of these leases offer an option for renewal or extension. The adoption of ASC 842 allows the Company to retain its current classification of leases, and the optional practical expedience rule has allowed the use of the current-period adjustment method to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the current period rather than the restatement of prior year lease amounts. The majority of the bases from which the Company operates are leased, with current remaining terms between one and fifty-nine years. The lease expense on those contracts with initial terms of twelve months or less are recognized on a straight-line basis over the lease term and are not recorded on the balance sheet. The Company does not currently maintain any finance leases and has only operating lease agreements.
The Company’s maturity analysis of lease payments under operating leases that have a remaining term in excess of one year as of March 31, 2020 was as follows (in thousands):
 
 
Minimum Payments
2020
 
$
1,657

2021
 
1,715

2022
 
1,234

2023
 
1,186

2024
 
987

Years subsequent to 2024
 
8,498

Total future minimum lease payments
 
15,277

Less: imputed interest
 
6,452

Present value of lease liabilities
 
$
8,825



9


During the three months ended March 31, 2020 and 2019, the Company recognized $1.0 million and $0.9 million of operating lease expense, respectively. Included in these amounts was $0.4 million and $0.3 million for contracts with remaining terms of less than one year for the three months ended March 31, 2020 and 2019, respectively.
Supplemental balance sheet information related to these leases as of March 31, 2020 and December 31, 2019 were as follows (in thousands):
 
 
March 31,
2020
 
December 31,
2019
Operating lease right-of-use asset
 
$
8,672

 
$
9,468

Other current liabilities
 
$
1,722

 
$
1,773

Long-term lease liabilities
 
7,103

 
7,815

Total operating lease liabilities
 
$
8,825


$
9,588


Other information related to these leases as of March 31, 2020 and December 31, 2019 were as follows:
 
 
March 31,
2020
 
December 31,
2019
Weighted average remaining lease term
 
17 years

 
16 years

Weighted average discount rate
 
6.15
%
 
6.11
%

Cash paid for amounts included in the measurement of lease liabilities was $0.6 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
The Company generates revenues as a lessor from its dry-leasing line of service that require a fixed monthly fee for the customer’s right to use the helicopter and, where applicable, additional charges as compensation for any support the Company may provide to the customer. Revenues from dry-leasing contracts are shown on the face of the statement of operations.
In 2018, the Company disposed of six H225 heavy helicopters through sales-type leases. In 2019, the Company completed the final sale of two of these helicopters and received cash proceeds of $5.0 million. During the three months ended March 31, 2020, the Company recognized $0.3 million of interest income on the remaining leases. As of March 31, 2020, the Company had remaining receivables of $13.4 million, all of which is due in 2020. These amounts are included in other receivables on the consolidated balance sheet.
5.
INCOME TAXES
During the three months ended March 31, 2020 and 2019, the Company recorded an income tax benefit of $0.8 million and $1.6 million, respectively, resulting in an effective tax rate of 10.2% and 23.7%, respectively.
During the three months ended March 31, 2020 and 2019, there were no new uncertain tax positions identified.
Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in other expense on the condensed consolidated statements of operations. As of March 31, 2020 and December 31, 2019, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was less than $0.1 million.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security ("CARES") Act to provide certain relief as a result of the novel coronavirus pandemic (“COVID-19”). The Company is currently evaluating all aspects of the legislation for potential impacts on its financial statements.
On January 23, 2020, the Company entered into an agreement to merge (the “Merger”) with Bristow Group, Inc. (“Bristow”). The Merger is intended to qualify as a tax free ‘‘reorganization’’ within the meaning of Section 368(a) of the Internal Revenue Code (the "Code"). Transaction costs associated with the reorganization have been estimated for the three months ended March 31, 2020, and will be capitalized into the basis of the stock acquired upon execution of the Merger.

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6.
LONG-TERM DEBT
The Company’s borrowings as of March 31, 2020 and December 31, 2019 were as follows (in thousands):
 
 
March 31, 2020
 
December 31, 2019
7.750% Senior Notes (excluding unamortized discount)
 
$
144,088

 
$
144,088

Senior secured revolving credit facility
 

 

Promissory notes
 
17,901

 
18,317

Total principal balance on borrowings
 
161,989

 
162,405

Portion due within one year
 
(17,901
)
 
(18,317
)
Unamortized debt issuance costs
 
(1,219
)
 
(1,320
)
Unamortized discount, net
 
(865
)
 
(936
)
Long-term debt
 
$
142,004

 
$
141,832


7.750% Senior Notes. On December 7, 2012, Era Group issued $200.0 million aggregate principal amount of its 7.750% senior unsecured notes due December 15, 2022 (the “7.750% Senior Notes”) and received net proceeds of $191.9 million. Interest on the 7.750% Senior Notes is payable semi-annually in arrears on June 15th and December 15th of each year.
Revolving Credit Facility. On March 31, 2014, Era Group entered into the amended and restated senior secured revolving credit facility (the “Amended and Restated Revolving Credit Facility”). On March 7, 2018, Era Group entered into a Consent and Amendment No. 4 to the Amended and Restated Senior Secured Revolving Credit Facility Agreement (the “Amendment No. 4” and the Amended and Restated Revolving Credit Facility, as amended by Amendment No. 4, is referred to herein as the “Revolving Credit Facility”) that, among other things, (a) reduced the aggregate principal amount of revolving loan commitments from $200.0 million to $125.0 million, (b) extended the agreement’s maturity until March 31, 2021, (c) revised the definition of EBITDA to permit an add-back for certain litigation expenses related to the H225 helicopters, and (d) adjusted the maintenance covenant requirements to maintain an interest coverage ratio of not less than 1.75:1.00 and a senior secured leverage ratio of not more than 3.25:1.00.
The Revolving Credit Facility provides Era Group with the ability to borrow up to $125.0 million, with a sub-limit of up to $50.0 million for letters of credit, and matures in March 2021. Subject to the satisfaction of certain conditions precedent and the agreement by the lenders, the Revolving Credit Facility includes an “accordion” feature which, if exercised, will increase total commitments by up to $50.0 million.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at Era Group’s election, either a base rate or LIBOR, each as defined in the Revolving Credit Facility, plus an applicable margin. The applicable margin is based on the Company’s ratio of funded debt to EBITDA, as defined in the Revolving Credit Facility, and ranges from 1.25% to 2.50% on the base rate margin and 2.25% to 3.50% on the LIBOR margin. The applicable margin as of March 31, 2020 was 1.50% on the base rate margin and 2.50% on the LIBOR margin. In addition, the Company is required to pay a quarterly commitment fee based on the unfunded portion of the committed amount at a rate based on the Company’s ratio of funded debt to EBITDA, as defined in the Revolving Credit Facility, that ranges from 0.375% to 0.500%. As of March 31, 2020, the commitment fee was 0.375%.
The obligations under the Revolving Credit Facility are secured by a portion of the Company’s helicopter fleet and the Company’s other tangible and intangible assets and are guaranteed by Era Group’s wholly owned U.S. subsidiaries. The Revolving Credit Facility contains various restrictive covenants including an interest coverage ratio, a senior secured leverage ratio and an asset coverage ratio, each as defined in the Revolving Credit Facility, as well as other customary covenants including certain restrictions on the Company’s ability to enter into certain transactions, including those that could result in the incurrence of additional indebtedness and liens, the making of loans, guarantees or investments, sales of assets, payments of dividends or repurchases of capital stock, and entering into transactions with affiliates.
As of March 31, 2020, Era Group had no outstanding borrowings under the Revolving Credit Facility and issued letters of credit of $0.7 million. In connection with Amendment No. 4 entered into in 2018, the Company wrote off previously incurred debt issuance costs of $0.4 million and incurred additional debt issuance costs of $1.3 million. Such costs are included in other assets on the condensed consolidated balance sheets and are amortized to interest expense in the condensed consolidated statements of operations over the life of the Revolving Credit Facility.
Promissory Notes. During each of the three months ended March 31, 2020 and 2019, the Company made scheduled payments on other long-term debt of $0.4 million. The notes require monthly principal and interest payments of $0.1 million with a final payment of $16.8 million, due upon maturity in December 2020.
7.
COMMITMENTS AND CONTINGENCIES
Fleet. The Company’s unfunded capital commitments as of March 31, 2020 consisted primarily of agreements to purchase helicopters and totaled $79.6 million, which is payable beginning in 2020 through 2021. The Company also had $1.3 million of deposits paid on options not yet exercised. All of the Company’s capital commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability other than aggregate liquidated damages of $2.1 million.
Included in these commitments are orders to purchase three AW189 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered 2021. Delivery dates for the AW169 helicopters have yet to be determined. In addition, the Company had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery in 2021 and 2022.
Brazilian Tax Disputes. In connection with its ownership of Aeróleo and its operations in Brazil, the Company has several ongoing legal disputes related to the local, municipal and federal taxation requirements in Brazil, including assessments associated with the import and re-export of its helicopters in Brazil. The legal disputes are related to: (i) municipal tax assessments arising under the authorities in Rio de Janeiro (for the period between 2000 and 2005) and Macaé (for the period between 2001 to 2006) (collectively, the “Municipal Tax Disputes”); (ii) social security contributions that one of its customers was required to remit from 1995 to 1998; (iii) penalties assessed due to its alleged failure to comply with certain deadlines related to the helicopters the Company imports and exports in and out of Brazil; and (iv) fines sought by taxing authorities in Brazil related to its use of certain tax credits used to offset certain social tax liabilities (collectively, the “Tax Disputes”).
The aggregate amount at issue for the Tax Disputes is $10.9 million. The Municipal Tax Disputes are the largest contributor to the total amount being sought from Aeróleo, with approximately $8.3 million at issue.
In addition to the foregoing Tax Disputes (and unrelated thereto), Aeróleo is engaged in two additional civil litigation matters relating to: (i) a dispute with its former tax consultant who has alleged that $0.7 million is due and payable as a contingency fee related to execution of certain tax strategies; and (ii) a fatal accident that occurred in 1983 that was previously settled with the plaintiffs’ in the U.S. (the “Civil Disputes”). With respect to the fatal accident, the plaintiffs are seeking to collect additional amounts in Brazil despite the previous settlement agreed upon by the parties in the U.S.
The Company continues to evaluate and assess various legal strategies for each of the Tax Disputes and the Civil Disputes. As is customary for certain legal matters in Brazil, Aeróleo has already deposited amounts as security into an escrow account to pursue further legal appeals in several of the Tax Disputes and the Civil Disputes. As of March 31, 2020, the Company has deposited $3.9 million into escrow accounts controlled by the court with respect to the Tax Disputes and the Civil Disputes, and the Company has fully reserved such amounts subject to final determination and the judicial release of such escrow deposits. These estimates are based on its assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s intentions and experience. Aeróleo plans to defend the cases vigorously. As of March 31, 2020, it is not possible to determine the outcome of the Tax Disputes or the Civil Disputes, but the Company does not expect that an outcome would have a material adverse effect on its business, financial position or results of operations.
General Litigation and Disputes
In the normal course of business, the Company is involved in various litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. In addition, from time to time, the Company is involved in tax and other disputes with various government agencies. Management has used estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its financial statements related thereto as appropriate. It is possible that a change in its estimates related to these exposures could occur, but the Company does not expect such changes in estimated costs would have a material effect on its business, consolidated financial position or results of operations.

11


8.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per common share of the Company are computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share of the Company are computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the if-converted method and/or treasury method. Dilutive securities for this purpose assume all common shares have been issued and outstanding during the relevant periods pursuant to the exercise of outstanding stock options.
Computations of basic and diluted earnings per common share of the Company for the three months ended March 31, 2020 and 2019 were as follows (in thousands, except share and per share data):
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
Net loss attributable to Era Group Inc.
 
$
(7,229
)
 
$
(5,943
)
Less: Net income attributable to participating securities
 

 

Net loss attributable to fully vested common stock
 
$
(7,229
)
 
$
(5,943
)
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
Basic
 
20,702,670

 
21,323,312

Diluted(1)

 
20,702,670

 
21,323,312

 
 
 
 
 
Loss per common share, basic and diluted
 
$
(0.35
)
 
$
(0.28
)
____________________
(1)
Excludes weighted average common shares of 203,612 for each of the three months ended March 31, 2020 and 2019, for certain share awards as the effect of their inclusion would have been antidilutive.
Share Repurchases. On August 14, 2014, the Company’s Board of Directors (the “Board”) approved a share repurchase program authorizing up to $25.0 million of share repurchases. On January 23, 2020, this program was suspended in connection with the entry into the merger agreement with Bristow.
In connection with the entry into the merger agreement with Bristow, the Board has authorized a special stock repurchase program that would allow for the purchase of up to $10 million of its common stock from time to time and subject to market conditions on the open market or in privately negotiated transactions. The special repurchase program will end upon the mailing of the joint proxy statement/prospectus for the merger.
In April 2020, Era Group repurchased 230,889 shares of common stock in open market transactions for gross consideration of $1.0 million, which is an average cost per share of $4.14. As of May 1, 2020, $9.0 million remained authorized under the $10.0 million share repurchase program.
9.
REVENUES
The Company derives its revenues primarily from oil and gas flight services, emergency response services and leasing activities. Dry-leasing revenues are recognized in accordance with ASC 842. Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

12


The following table presents the Company’s operating revenues disaggregated by geographical region in which services are provided:
 
Three Months Ended 
 March 31,
 
2020
 
2019
Operating revenues:
 
 
 
U.S.
$
38,992

 
$
34,214

International
14,988

 
13,616

Total operating revenues
$
53,980

 
$
47,830

The following table presents the Company’s total revenues earned by service line:
 
Three Months Ended 
 March 31,
 
2020
 
2019
Revenues:
 
 
 
Oil and gas flight services:
 
 
 
U.S.
$
37,054

 
$
32,466

International
13,281

 
13,616

Total oil and gas
50,335

 
46,082

Emergency response services
3,645

 
1,748

Total operating revenues
$
53,980

 
$
47,830

Dry-leasing revenues:
 
 
 
U.S.
190

 
451

International
2,886

 
3,012

Total revenues
$
57,056

 
$
51,293


The Company determines revenue recognition by applying the following steps:
1.
Identify the contract with a customer;
2.
Identify the performance obligations in the contract;
3.
Determine the transaction price;
4.
Allocate the transaction price to the performance obligations; and
5.
Recognize revenue as the performance obligations are satisfied.
The Company earns the majority of its revenue through master service agreements or subscription agreements, which typically include a fixed monthly or daily fee, incremental fees based on hours flown and fees for ancillary items such as fuel, security, charter services, etc. The Company’s arrangements to serve its customers represent a promise to stand ready to provide services at the customer’s discretion.
The Company recognizes revenue for flight services and emergency response services with the passing of each day as the Company has the right to consideration from its customers in an amount that corresponds directly with the value to the customer of performance completed to date. The Company typically invoices customers on a monthly basis for revenues earned during the prior month, with payment terms of 30 days. The Company’s customer arrangements do not contain any significant financing component for customers. Amounts for taxes collected from customers and remitted to governmental authorities are reported on a net basis.

13


10.
RELATED PARTY TRANSACTIONS
The Company purchased products and services from its Dart Holding Company Ltd. (“Dart”) joint venture totaling $0.6 million during the three months ended March 31, 2019. The Company also had a note receivable from Dart, which had a balance of $2.3 million as of December 31, 2018. The note was paid in full during the first quarter of 2019. Purchases from Dart are included in operating expenses on the consolidated statements of income, and the note receivable was included in equity investments and advances on the consolidated balance sheets.
During the three months ended March 31, 2019, the Company in conjunction with its 50% joint venture partner entered into an agreement to sell Dart. The transaction closed on April 1, 2019, for gross proceeds of $38.0 million, including payment of the note receivable in March 2019, and net gains of $10.9 million.
11.
SHARE-BASED COMPENSATION
Restricted Stock Awards. The number of shares and weighted average grant price of restricted stock awards during the three months ended March 31, 2020 were as follows:
 
Number of Shares
 
Weighted Average Grant Price
Non-vested as of December 31, 2019
626,399

 
$
10.31

Restricted stock awards granted:
 
 
 
Non-employee directors
40,430

 
$
7.54

Employees
513,685

 
$
7.54

Vested
(282,263
)
 
$
10.44

Non-vested as of March 31, 2020
898,251

 
$
8.56


The total fair value of shares vested during the three months ended March 31, 2020 and 2019, determined using the closing price on the grant date, was $2.9 million and $2.5 million, respectively.
Stock Options. The Company did not grant any stock options during the three months ended March 31, 2020.
Employee Stock Purchase Plan (“ESPP”). In the first quarter of 2020, the Company, in connection with its entry into a definitive agreement to merge with Bristow, suspended the ESPP.
Total share-based compensation expense, which includes restricted stock and the ESPP, was $0.7 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.
12.
GUARANTORS OF SECURITIES
Era Group’s payment obligations under the 7.750% Senior Notes are jointly and severally guaranteed by all of its existing 100% owned U.S. subsidiaries that guarantee the Revolving Credit Facility and any future U.S. subsidiaries that guarantee the Revolving Credit Facility or other material indebtedness Era Group may incur in the future (the “Guarantors”). All the Guarantors currently guarantee the Revolving Credit Facility, and the guarantees of the Guarantors are full and unconditional and joint and several.
As a result of the agreement by the Guarantors to guarantee the 7.750% Senior Notes, the Company presents the following condensed consolidating balance sheets and statements of operations, comprehensive income and cash flows for Era Group (“Parent”), the Guarantors and the Company’s other subsidiaries (“Non-guarantors”). These statements should be read in conjunction with the accompanying consolidated financial statements and notes of the Company.

14


Supplemental Condensed Consolidating Balance Sheet as of March 31, 2020
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
111,654

 
$

 
$
1,864

 
$

 
$
113,518

Receivables:
 
 
 
 
 
 
 
 
 
Trade, operating, net of allowance for doubtful accounts

 
28,738

 
5,364

 

 
34,102

Trade, dry-leasing

 
5,754

 

 

 
5,754

Tax receivable

 
2

 
2,157

 

 
2,159

Other

 
14,594

 
412

 

 
15,006

Inventories, net

 
19,927

 
14

 

 
19,941

Prepaid expenses
991

 
2,108

 
313

 

 
3,412

Total current assets
112,645

 
71,123

 
10,124

 

 
193,892

Property and equipment

 
876,767

 
16,818

 

 
893,585

Accumulated depreciation

 
(340,873
)
 
(4,584
)
 

 
(345,457
)
Property and equipment, net

 
535,894

 
12,234

 

 
548,128

Operating lease right-of-use

 
7,526

 
1,146

 

 
8,672

Investments in consolidated subsidiaries
189,347

 

 

 
(189,347
)
 

Intangible assets

 

 
92

 

 
92

Deferred income taxes
11,711

 

 

 
(11,711
)
 

Intercompany receivables
285,926

 

 

 
(285,926
)
 

Other assets
524

 
873

 
329

 

 
1,726

Total assets
$
600,153

 
$
615,416

 
$
23,925

 
$
(486,984
)
 
$
752,510

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
1,239

 
$
10,078

 
$
1,158

 
$

 
$
12,475

Accrued wages and benefits
625

 
4,767

 
1,173

 

 
6,565

Accrued interest
3,259

 
50

 

 

 
3,309

Accrued income taxes
2,273

 

 
24

 

 
2,297

Accrued other taxes

 
1,201

 
338

 

 
1,539

Accrued contingencies

 

 
701

 

 
701

Current portion of long-term debt

 
17,901

 

 

 
17,901

Other current liabilities
1,126

 
1,904

 
280

 

 
3,310

Total current liabilities
8,522

 
35,901

 
3,674

 

 
48,097

Long-term debt
142,004

 

 

 

 
142,004

Deferred income taxes

 
112,788

 
907

 
(11,711
)
 
101,984

Intercompany payables

 
220,529

 
65,417

 
(285,946
)
 

Operating lease liabilities

 
6,219

 
884

 

 
7,103

Deferred gains and other liabilities

 
920

 

 

 
920

Total liabilities
150,526

 
376,357

 
70,882

 
(297,657
)
 
300,108

Redeemable noncontrolling interest

 

 
2,752

 

 
2,752

Equity:
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,756,272 outstanding, exclusive of treasury shares
230

 

 

 

 
230

Additional paid-in capital
452,703

 
100,306

 
4,562

 
(104,870
)
 
452,701

Retained earnings
7,438

 
138,753

 
(54,271
)
 
(84,457
)
 
7,463

Treasury shares, at cost, 1,236,282 shares
(10,744
)
 

 

 

 
(10,744
)
Total equity
449,627

 
239,059

 
(49,709
)
 
(189,327
)
 
449,650

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
600,153

 
$
615,416

 
$
23,925

 
$
(486,984
)
 
$
752,510


15


Supplemental Condensed Consolidating Balance Sheet as of December 31, 2019
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
114,965

 
$

 
$
2,401

 
$

 
$
117,366